Friday, October 11, 2013

In
its recent decision in Vermont Mut. Ins.
Co. v. Zamsky, 2013 U.S. App. LEXIS 20569 (1st Cir. Oct. 9,
2013), the United States Court of Appeals for the First Circuit, applying
Massachusetts law, had occasion to consider the applicability of exclusions in
homeowners policies limiting coverage to insured locations.

The
underlying loss arose out of a fire at what appears to have been a summer home which
was owned by the insured but not identified in the insured’s homeowner’s policy
as an “insured location.”The insured’s
daughter and several of her friends went to the house and while there tried to
light a fire in a portable fire pit.Gasoline was introduced to the fire, resulting in a large flash of
flames that caused severe burns to three of the individuals present.Suit was later brought against the insured,
and the matter was tendered to the insured’s homeowner’s insurers: two primary
insurers and an umbrella insurer.The
carriers agreed to provide the insured with a defense, subject to a reservation
of rights to deny coverage based on what the court described as a “UL”
exclusion (presumable uninsured location), precluding coverage for bodily
injury:

e. Arising out of a premises:

(1) Owned by an
"insured";

(2) Rented to an
"insured"; or

(3) Rented to
others by an "insured";

that is not an "insured location" . . .

The
coverage dispute eventually resulted in litigation, and on motion for summary
judgment, the United States District Court for the District of Massachusetts
held that the exclusion was inapplicable because the fire did not result from a
condition inherent to summer home.

On
appeal, the First Circuit observed the lack of any decisions by Massachusetts’
highest court – the Supreme Judicial Court – construing the UL exclusion.The court nevertheless found instructive two decisions
from the Massachusetts Appeals Court in Callahan
v. Quincy Mutual Fire Insurance Co., 736 N.E.2d 857 (Mass. App. Ct. 2000)
and Commerce Insurance Co. v. Theodore,
841 N.E.2d 281 (Mass. App. Ct. 2006).In the Callahan
decision, the Appeals Court held the exclusion inapplicable to a dog bite that
happened at location owned by the insured, but not otherwise an “insured
location,” because the dog was not a condition of the premises.In Theodore,
the Appeals Court held the exclusion applicable where a third party was on a
premises owned by the insured, but not an “insured location,” to perform repair
work on the premises.Under such
circumstances, the injury happened because of a condition inherent to the
premises, and as such, the injury could be considered to have arisen out of the
non-insured location.

The
First Circuit reasoned that the Callahan
and Theodore cases stand for the
general principal that the phrase “arising out of a premises” as used in the UL
exclusion means arising out of a condition
of the premises.As the court explained:

... the cases establish a dichotomy: if the covered occurrence
arises out of a condition of the premises and the exclusion's other
requirements are satisfied, the exclusion applies; otherwise, it does not.

The
court further noted that this reading of the exclusion comported with case law
from other jurisdictions, such as Louisiana and Ohio.

With
this rule in mind, the court agreed that the exclusion was inapplicable to the
underlying burn case because the fire was not caused by a condition of the
premises.Rather, the fire arose out of
the use of the fire pit.Because the
fire pit was a portable device that was not inherently a part of the premises, and
could not be considered a defect in the premises, there simply was not a
sufficient connection between the home and the fire as required for the
exclusion to apply.

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